Oil prices drop 3 percent as investors retreat from overnight gains
SINGAPORE – Oil prices fell nearly 3 percent in Asian trade on Tuesday, with investors covering short positions and taking profits after Brent and US crude soared more than 8 percent in the previous session.
Both Brent and US crude prices dropped nearly $2 a barrel shortly after trading in Brent started on Tuesday before partly recovering later in the session.
“A lot of the fall was due to short covering,” said Ben Le Brun, market analyst at Sydney’s OptionsXpress.
“There could be a bit of profit-taking for people who have gone long.”
US crude, also known as West Texas Intermediate, had climbed 27.5 percent by the end of three days of gains in the previous session, the largest three-day increase in dollar terms since February 2011 and the biggest percentage increase over three days since August 1990.
The surge was fuelled by an OPEC commentary saying the cartel was willing to talk to other producers to achieve reasonable oil prices, as well as by the downward revision of US output data by the US Energy Information Administration (EIA).
“(The OPEC comments) could be just a bit of politicking … but it does suggest that many producers are likely to be hurting at these levels,” ANZ said in a market report on Tuesday.
OPEC’s indications about possible cuts could be the cartel’s way of dealing with increased Iranian crude exports once sanctions are lifted, Phillip Futures said in a note on Tuesday.
Revised EIA data published on Monday showed US domestic oil production peaked at just above 9.6 million barrels per day (bpd) in April before falling by more than 300,000 bpd over the following two months.
US commercial crude stocks fell by 1.5 million barrels to 449.3 million barrels last week, according to a Reuters poll of analysts on Monday taken ahead of US industry and government data.
Despite the fall in US production the global oil market is still over supplied with oil and a decline in US production is increasingly likely in 2016, Morgan Stanley said in a report on Tuesday.
Brent crude LCOc1 for October delivery had dropped $1.50 to $52.65 a barrel, or 2.8 percent, as of 0341 GMT after climbing $4.10, or 8.2 percent, in the previous session. It dropped by $1.99 a barrel earlier in the session.
US crude CLc1 for October delivery dropped $1.51, or 3 percent, to $47.69 a barrel, after it settled up $3.98, or 8.8 percent in the previous session. It earlier dropped by $1.97 a barrel.
Investors will be watching key US data, including oil stocks, manufacturing and vehicle sales figures, later on Tuesday to give further direction to prices.
That comes after official data from China on Tuesday showed its manufacturing sector contracted at its fastest pace in three years in August, reinforcing concern over the health of the world’s second-largest economy. -Reuters